Scrutiny

Payday Loan Industry Under Scrutiny

Payday loans, also known as paycheck advance, are under considerable amount of scrutiny by State and Federal legislators as many lenders continue to either close their stores or in case of online paycheck advance lenders stop online lending to those residents of that State.

Latest development, as result of financial reform bill, is creation of a new federal B=bureau called Consumer Financial Protection Bureau of CFPB. This federal agency will be responsible for making laws and regulations in regards with the payday industry but it is not up to CFPB agency to enforce it. In fact CFPB lacks legal enforcement authority so it will be up to the States to enforce the rules and regulations made by CFPB.

Some questions how effect CFPB considering the fact that it will not be able to enforce its regulations and there are States like State of Texas where they often want to act as independent as possible where payday loans are permissible with minimal regulations however there are those who believe that leaving it up to the State makes much more sense as States are the one that know their own conditions better.

Bottom line is that payday lending is going under rapid changes are more regulations such as loan cap and fee caps being introduced leaving the whole industry under scrutiny.

A credit is usually a slow process

1Independent organizations that have not developed partnerships have systemic paradigms. If one part of the organization’s culture—especially the leadership—is based on a paradigm of independence, then it’s probable that other parts of the organization are driven by a similar dynamic. Organizational structures tend to replicate themselves.

Like families that are influenced by the beliefs of the parents, organizations incorporate the values of their leaders. If the leadership is afraid to establish a partnership based on trust and mutual benefits, other parts of the organization will reflect that fear. Leadership’s values determine the organization’s past or future orientation as well. Within that orientation lies a collection of attitudes and behaviors that reflect the company’s culture. Owners and managers set the company’s policies and establish independent or interdependent systems. If your company has a past orientation, it’s hard to change direction. Even with an awareness of the problems, an intellectual understanding of the need for interdependence, a determination to undertake a fearless self-assessment, and a desire to change, most companies find changing a culture a slow and arduous process.

The interest-based credit approach

I’ve worked with many organizations to implement what I call interest-based problem solving. One such client was the Waldorf Corporation, headquartered in St. Paul, Minnesota. This company makes packaging for huge corporate clients, from Land O’Lakes to Legos, from 3M to Hormel. They recycle paper products and work with governments around the globe in wastepaper recycling efforts.

Dedicated to forging partnerships with clients the world over, management has also formed partnerships with four unions in an effort to foster win-win relationships. Their interest-based activities have focused on prioritizing and then finding ways to satisfy the interests of each side.

The interest-based approach was used with the Dairyland Power Cooperative in Wisconsin in 1995 to negotiate agreements between unions and the company management. In this case the goal was to transform the mission statement originally approved by the labor/management committee in 1992 into a reality. Essentially both sides were bound by an agreement to use “interest-based bargaining/ consensus” guidelines to resolve grievances, make decisions, and find the best solutions.

Develop a debt management process

In the early 1990s, I was consulting with a large telecommunications company. I was part of a team that developed a partnership between management and the union to improve the quality of work processes. When I asked the management and union representatives to describe the company’s culture, I heard: “It’s like living in the old Soviet Union.” The number of times I heard that analogy made an impact on me. Since I knew none of these people had lived in the Soviet Union, I asked them to elaborate. They gave me this list:

Autocratic management style
Dictatorial decision making
No meaningful input from employees
Closed access to information (secretive)
Mistrust among employees
Resistance to change
Motivation based only on self-interest
Favoritism

Now contrast that list with the list of positive components of interdependence given to me by Jack Stack, general manager of Springfield Remanufacturing:

Embracing change
Development of trust
Meaningful contributions to decision making by employees
Open management style
Fewer employee problems
Win-win conflict resolution

Payday loan appears to be a good fit

7Kroc’s dedication to maintaining interdependence was most evident in his decision not to sell vast exclusive territories for multiple franchises. Despite the attractiveness of huge up-front profits in selling off rights to big syndicates, he believed the owner-operator was the best operator. He knew that hands-on owners would care about the business, not just about the numbers.His policy was to award only one restaurant at a time to an owner-operator. If that one was successful, the franchisee could apply for another. This is how Kroc’s empire grew. Product, service, and operations were so good that McDonald’s never worried about finding people who wanted their own cash machine.

McDonald’s has continued to form alliances for marketing purposes— most notably with the Disney Corporation. These two giants have had a global alliance wherein McDonald’s has promoted numerous major film releases for Disney. It is a sponsor of Dinoland at Disney’s Animal Kingdom in Florida and built Ronald’s Fun House at Disney World. Disney employees even sell McDonald’s french fries at Disney World. These two corporations have joint philanthropic ventures, too, including the American Teacher Awards and Young Inventors Awards, and have jointly donated millions of dollars toward the purchase of “Sue,” a Tyrannosaurus rex skeleton, by Chicago’s Field Museum. Clearly the two corporations share common goals—not only in cross-promotion but in catering to similar constituencies. It appears to be a good fit for both.

Using the internet for credit decision-making

There are many ways to develop new products or boost the profitability of existing ones using the internet. The principles for online innovation are, with several additions, similar to those for offline product development.

The internet and customer-focused decisions

One of the most significant business benefits of the internet is the ability to create new relationships with customers. This includes the ability to capture, store and disseminate detailed information about customers and their preferences, thus allowing swift and practical decisions on everything from new product development and pricing to stock levels and future marketing plans. It enables faster, more reliable transactions, improving efficiency and reducing costs.

The internet also enables different scenarios to be tested, thus enhancing the accuracy of decisions. Another advantage is the ability to provide special-offer promotions offering significant value. As well as facilitating the promotion, the internet also enables customer data to be analysed and used to inform future decisions.

Using customer credit data

The value of detailed market and customer information is enormous. Common uses of customer data include the following:

Tracking purchasing habits. This can show how frequently customers buy, how much they spend, how they choose to make their purchases and, perhaps most importantly, what they are choosing to buy. Information about buying preferences enables organisations to start building genuine, practical relationships with their customers, increasing the likelihood of repeat business.

It also allows them to target products at the customers most likely to buy them.

Enhancing special offers. Analysis of special-offer promotions may reveal that the organisation does not need to discount prices. This in turn can remove the “wasted” margin that may occur when the price of a product is reduced to attract people that would be prepared to buy it at the higher price. Analysis may show that the people that would value the product are the ones hearing about it.

Maximising sales opportunities, leading to repeat business and increased revenue at marginal cost. Linked with the previous benefit is the ability to increase customer response rates through improved targeting. This occurs when a current or potential buyer of one product is targeted with another complementary one. So, for example, if a customer is viewing cars online, an advertisement for a financing package may appear.

Developing new sources of revenue. Detailed customer data may highlight new, unknown or previously difficult to exploit business opportunities. For example, an online travel agency may have previously avoided selling ancillary products, from insurance to sun-cream, but given the potential new scale of their business and the ability to sell ever more effectively to a wider range of people, new product offerings may prove worthwhile.

Ensure that credit data is current and accurate

Ensure that information is kept up-to-date. It is tempting to rely on historic data, and it is always interesting to review the development of trends over time. However, it is much more useful to ensure that data is current and accurate. One of the main reasons websites have grown in scope and popularity, with virtually every major organisation now possessing at least one, is that they offer speed and flexibility when dealing with customers. They are also a valuable source of information.

Analysing information

Database vendors provide tools that allow analysis of information contained in a database, using a query. The process can be automated for large organisations that need to analyse or respond to information quickly, perhaps across a large volume of customer records (airline reservation systems or online bookstores are prime examples). Furthermore, queries can be combined using “and” or “or” commands to identify complex relationships within sets of data; this in turn can be used to identify key issues, opportunities, concerns and trends.

Aggregated data can be used to identify the preferences and habits of groups of customers, as well as data about a specific customer’s preferences. Aggregate data is most useful at the macro strategic level. Individual data is more powerful at the micro level of strategy implementation as it can be used to build a more compelling, customised offer for individual customers.

Loyalty schemes favoured by organisations from airlines to supermarkets exploded in popularity, only to lose their competitive impact within a few years. Part of the reason was that customers learned that the rewards of loyalty were usually small and often uninteresting.

Collecting credit information

Computer systems are used widely to record and analyse every part of the transaction between businesses and their customers. In using technology in this way, the following principles should be followed.

Decide what information to collect. It is important to avoid drowning in information about customers that is of little or no real use. Work out what information is desirable and focus on collecting it in order of importance. For a shoe firm, shoe size will be crucial, whereas head size will be of no use at all unless the shoe firm is planning to diversify into hats. Work out where more than one set of data needs to be assessed before a conclusion can be drawn. This interrelation of information is important when analysing data that has been aggregated from a range of sources. The focus for information collection needs to be on building better one-to-one relationships with individual customers. With data mining, the objective is to provide an information engine that will drive the organisation so customers receive a continuously improving service.

Credit Data Mining – a key to success

Data mining is the gathering of information about customers, with the aim of analysing and then using it in the most effective ways. Scientifically accurate market segmentation depends on data mining. One of the values of the internet is the ability to capture and use information relating to every customer transaction made through it. For example, internet retailers such as amazon.com use data to customise their business services. Dell.com uses information from sales to ensure future offers are appealing and competitive; and during the technology boom of the late 1990s, Dell reported industry-leading revenue from its website of $15m per day.